Common VAT Problems and How to Fix Them

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As a small business, you need to have an acute understanding of the taxation process. You need to know how tax rates differ depending upon differing conditions. Without an accountant, this can be difficult.

Value Added Tax or VAT is a tax you charge your customers on everything you sell. The standard VAT in the UK is 20%. However, this varies upon differing goods. Necessities such as food and clothes are VAT free. A reduced rate of 5% applies to domestic goods and supplies. For the rest, it is the standard VAT rate.

What is Making Tax Digital?

From the 1st of April 2020 all UK businesses (barring certain exceptions) are required to submit VAT digitally. This means you only have a week to figure out how to digitalize your taxation system.  

The Making Tax Digital scheme introduced by the UK government aims to digitalize taxation entirely. Currently, it is VAT focused but in later stages it aims to digitalize income, self-assessment, and corporation tax too. The government is yet to announce the dates for these later parts.

A digital taxation system would allow the government to improve transparency, reduce tax collection costs, and have a more organized system.

What this means for your business?

If you unfamiliar with the digital landscape, now is the time to get up to speed. Although, at first it might seem daunting, you will immediately get the hang of it.

As per the MTD scheme, you are required to file VAT using a VAT software compatible with HMRC. The software has an inbuilt VAT calculator and is able to submit VAT directly to HMRC’s website.

The first thing you need to do is importing your VAT data into the software. Assuming, of course, you have chosen a software. Depending upon the software you chose, you might not need a bridging software (this imports data from one application to another.)

Benefits of Using a Software

The UK government digitalized taxation for improving tax accountability and reducing government revenue spent collecting tax manually.

They did this for better governance, but digital tax can also help your business. Filing VAT manually is cumbersome. You can encounter many problems ensuring you file your tax returns accurately and in compliance with HMRC regulations.

However, by certifying certain software to directly file VAT, the UK government has helped us cope with many of the problems we faced before.

VAT filing Problems

Problem: Lack of VAT know-how

Unfamiliarity with VAT regulations is the most common VAT problem. While visiting the HMRC website contains all the details, you still don’t have a clear direction. You can end up incurring fines for not filing VAT returns in compliance to the rules.

Solution: In-built Software Tutorials

Most software have an inbuilt help page that allows you to solve your query within the application. This means you don’t need to go back and forth on the web. You can directly figure out what is troubling you. 

Problem: Paperwork Mistakes

Missing out details such as supplier’s name, customer’s name, invoice date, tax point, type of supply, and the VAT rate are common occurrences. They are simple mistakes yet they distort the entire VAT return process.

Solution: Calculate VAT for each Unit

A software calculates VAT applied for each unit. For every good or service sold you can view the amount of VAT you need to pay. This ensures no mistakes are made when the software adds up VAT at the end. VAT is filed directly to HMRC’s website. Moreover, the paperwork mistakes become irrelevant because they are filed using pre-fed data. You don’t need to fill them on the last minute.

Problem: Missing VAT Deadlines

In the hustle of business activity, it is far too easy to miss VAT deadlines. Or scramble for data at the last minute. In such scenarios, you end up fined by HMRC, adding to your business woes.

Solution: Deadline Reminders by a Software

A software constantly keeps track of your upcoming VAT deadlines and makes VAT information a priority. The upcoming VAT date and the amount you have to pay are displayed on the dashboard—the very first aspect of the application. This ensures you remain updated with VAT every time you look to see your business progress.

Problem: VAT Reclamation

Knowing what is reclaimable and what isn’t is important when it comes to VAT. VAT for not all items is reclaimable. For example, you cannot recover VAT spent on entertaining clients.

Solution: Let Software Categorize VAT expense Items

You don’t have to worry about what items VAT can or cannot be reclaimed on with a software. A software automatically takes care of this. Items with irreclaimable VAT are listed in the VAT menu.


It can feel overwhelming amid changing VAT times. But you have nothing to worry with an accounting software. It takes care of all your VAT needs. You can file VAT directly to HMRC with mere clicks. 

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